Irrational actors

Most of modern economic theory (at least as well as I can follow it) seems to be predicated that the individual consumer and supplier will act in rational ways that seek to serve their own best interest.

But now social scientists are discovering that it "ain't necessarily so". Looking at how pay scale effects work output they uncovered a surprise:

"For example, Ariely describes a series of experiments that measure work performance among randomly selected groups of people where one group is paid nothing, one group is paid a little, and a third is paid a lot. The group that was paid a little did a little. The group that was paid a lot did a lot. The group that was paid nothing did even more. Ariely and colleagues go on to refine this experiment by changing the reward to gifts (chocolates) instead of money, then to gifts whose value is enumerated ('you will receive a $5 box of Godiva chocolates') and examines how this effects performance. He also examines what happens to performance in situations in which one is at first paid to work, then asked to do the same work again for free.

The results are fascinating, and point to the idea that we work hard for money, and we work hard for social reasons, but that one can short-circuit the other, and lastingly so. He then goes on to explain how companies that ask their employees to work harder for social reasons ('you're part of the team') but dismiss the employees for economic reasons ('we need to cut costs') end up in an impossible place. So do companies that ask customers to come make a purchase as a social transaction ('join the family!') but then treat the transaction after the fact as a purely economic matter ('you should have read the fine-print')."

Read the full article here.

Those of us who work in the non-profit world, and who depend on the gifts of volunteers, would do well to read, mark and inwardly digest this information. It helps explain why congregational economics are so different than non-profit hospital corporations, which are different from giant multi-national companies.

Which is a good thing I think.

Comments

[Paul Martin]

I think this just underlines the fact that life is not a business. And that's a good thing.